The 21st Century Small Business

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Here at Forward View, we spend a lot of time asking ourselves, “What’s next?” and “How can small businesses succeed in the coming months and years?” We use these thought exercises to develop The Forward View, and these insights impact all of our consulting projects and research reports. Our efforts to peer into the crystal ball aren’t used to answer philosophical questions. Instead, our goal is to help clients prepare for the future of business by identifying opportunities to embrace and risks to avoid. Based on Forward View analyses and experiences, I’d like to share some of our key ideas and themes for 21^st century small business.

Fresh Business Models

Looking ahead, we believe the demand for specialized products and services will continue to grow rapidly. Why? Pick up your smartphone for a minute (we know it’s rarely out of reach) and consider all the icons on your home screen. If you’re like 90% of people I know, you have several apps on your phone and still more on a tablet or computer.^[1] Almost all of these apps have one thing in common: They offer only a few features, but they perform certain tasks exceedingly well. Long gone are the days when a few programs performed most of the available functions on a device (think of the declining importance of Windows Office for consumers). Now, we download a new app for almost everything we want to do!

Business is moving in the the same direction. While large corporations are increasingly splitting themselves apart (such as HP) or decentralizing their structures (see Alphabet), smaller companies will remain the nimblest. (Alphabet, by the way, is essentially Google plus a startup lab!)

Local businesses can seize opportunities in geographic areas left untouched by big firms. For example, I live in a region dominated by mining. A small business catering to the unique needs of coal truck drivers could be very successful here, and the competition from large corporations would be nil.

Thanks to technology, though, small businesses can tap into niche markets across the country… or the world. Let’s say that you’ve identified an unmet need for gluten-free Southern desserts. You’re a great Southern cook who understands gluten sensitivity and Celiac Disease, but your small city can’t support a gluten-free bakery. Well, instead of giving up on your idea, you start a website to sell your delicious treats nationwide. In addition, you create an app folks can buy to enjoy exclusive access to gluten-free recipes and videos of your cooking. That’s a business model for the internet and social media age! Devoted customers will pay enough to support the high margins necessary for niche companies. (A small firm will almost never win on price.)

Forward View believes that service providers will be the greatest beneficiaries from the trend toward app-like business models. In August, the U.S. service industry grew for the 67th consecutive month, according to an ISM report.^[2]

Expertise in very specific areas is increasingly prized over generalized knowledge of a larger field. Whether you’re a guru for pregnant yoga students or know everything about financial planning for the disabled, there are opportunities to profit from specialized skills, particularly in urban areas. We think it’s best to focus on your core competencies instead of trying to be a one-stop shop. If your small business website needs eighteen tabs and forty pages just to present your services, you’re offering too much! Drill down to what you do best and execute at a consistently high level.

Funding for the New Millennium

As an adjunct economics and finance professor for Southern New Hampshire University, I’m absolutely fascinated by the democratization of small and medium business (SMB) funding. Banks are no longer the sole source for startup or growth capital. Instead, peer-to-peer lending and crowdsourced financing are developing into key ways to fund entrepreneurial ventures. Legislation and regulation have happily expanded the ranks of potential investors. Title III of the JOBS Act is currently awaiting final SEC implementation, but when the regulations are published, small businesses will have easier access to crowdfunded capital. Until recently, only “accredited investors” (a.k.a. the wealthy) could invest in many of the available crowdfunding programs, but that is changing. Per Peter Clough of Early Investing:

For the smaller investor who does not meet the requirements to be an accredited investor, this is the first widely available opportunity to ‘get in early’ on newly minted companies. In the past, many new ventures have been funded with personal savings and initial investments from ‘friends and family’; in the simplest of analogies, what Title III enables is the chance for almost everyone to be a part of that friends and family circle. ^[3]

Almost time for Title III

More than ever before, there are options open to regular Americans who want to bypass traditional financial intermediaries and raise or invest capital. EquityNet, Seed Invest and Early Shares are just a few of the SMB crowdfunding platforms currently in existence. These new channels of funding are exceedingly valuable for savers as traditional savings accounts and CDs offer interest rates below the level of inflation. Investors seeking greater returns on their money outside of the stock market now have fresh opportunities to consider.

Small businesses can take their pitches directly to the public, thus giving them access to funds even if banks laugh at their loan applications. Competition among potential creditors or investors undoubtedly benefits entrepreneurs and lowers the cost of capital. We predict that more and more firms will bypass the typical funding channels for at least part of their capital needs. The economy grows when SMBs have enhanced access to money and those with extra dollars can funnel it into productive activities, so crowdfunding is poised to become a great strength of the modern economy.

Modern Technology & Marketing

Technology is an essential ingredient in any recipe for business success in the new millennium. The good thing is that acquiring exceptional technologies need not be prohibitively expensive. Cloud-based computing and never-ending advances in microprocessor manufacturing combine to steadily lower the cost of software and hardware. Today, tiny companies are enjoying technologies unavailable to massive corporations just a decade ago, and this trend is far from slowing down. So, what technologies do modern small businesses need to succeed? I’m glad you asked! Here’s a list:

• A cloud-based secure storage system, such as Dropbox.
• At least one method of receiving electronic and credit card payments (PayPal, Square etc.). Cash and checks are so 2005!
• Your own app or a detailed and current listing on popular apps like Yelp and TripAdvisor.
• A mobile-friendly website (technically known as a responsive site). If your website isn’t responsive, you’re frustrating at least 25% of your viewers with illegible text and buttons they can’t tap!
• Active social media accounts. By “active,” I mean pages you post on more than once a month. If you’re not developing social media conversations with potential and current customers, you’re missing out on free marketing.

You can maintain all of the technology discussed above for about $700 a year (or $250 a year if you manage your own website). This is a relatively minor investment, even considering that having a small business website designed would cost $2,000–$3,000. If you effectively leverage your website, social media and related tools, the ROI should be over 100%. Few projects offer such hefty returns!

Summary

I hope you’ve found this information to be interesting and applicable to your own firm. As someone who has found the joy of small business ownership, I enjoy sharing my professional insights. Becoming an entrepreneur was the best career decision of my life, and I’m especially happy to be serving fellow job-creators. My consulting experiences have also convinced me that the world of small business is rapidly changing. This ongoing transformation is a net positive for the economy, though, because innovation is increasingly coming from young, modestly-sized companies. New company formation in the U.S. has fallen by nearly half since 1978^[4], but I believe that we’re entering a new age of small business growth The advice and ideas presented above were prepared to assist the development of 21^st century businesses, and Forward View is proud to be at the forefront of the future of entrepreneurship!

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